The bank will never be the same again; institutions need to rethink their approaches in key areas

SRM (Strategic Resource Management), an independent consulting firm serving financial institutions, today shared information from its clients and subject matter experts on what to expect in 2021.

It will take more than understanding the importance of digital

  • The lockdowns and closures used to fight the pandemic have led to the importance of digital becoming amplified and echoed by most industry commentators. It is doubtful that financial institutions will not review the digital strategy in 2021, but there will be a subset that will include the less obvious factors intended to separate the winners from the losers. One of those factors is the break with the permanent model used by banks and credit unions to meet consumer needs.

  • More institutions will join those who have already realized that online and mobile banking are not digital banking and their digital brands will not be sustained by simply finding the right online and mobile banking provider. Multiple providers offering enhanced services, such as predictive analytics to anticipate a consumer’s needs, will be integrated to create a transformative digital ecosystem that is flexible, configurable, scalable, and capable of continuous and frequent innovation.

  • Shifting to this digital transformation framework will require modern technology and API-based architectures that create an environment in which technology can be phased out and / or replaced at a much faster rate. Banks and credit unions that take this approach will have both answers and opportunities regarding the big tech invasion – for example, digital banking and Google’s co-branded checking accounts. Increased agility will allow these institutions to defend their territory and act as a desirable partner with non-traditional companies entering the industry.

Shrinking branch footprint accelerates, new use of branch space emerges

  • The total number of bank branches peaked in 2009 at almost 100,000 and has declined slightly above 85,000 today. In 2021 and beyond, the pace of branch decline will increase dramatically as financial institutions apply lessons learned during the pandemic to operate more efficiently – with less reliance on their physical footprint. Increases in M&A activity (more below) will also contribute to a decline in branches above the pace seen before the pandemic.

  • Branch closures will be combined with institutions that will rethink the function of the branch in a way more akin to that represented by Capital One’s “cafes”. The pandemic was a catalyst for a first step in this direction as banks and credit unions closed their lobbies, except on “by appointment only”. In addition, the branch’s transactional activity has been pushed to the drive-thru window.

  • The basic ‘doctor visit’ model for branch services will be kept to convert the remaining branches into short-term counseling and sales facilities (much of 2021), with other types emerging after socialization can be done without health problems (beyond 2021), such as as a co-location with existing coffee chains.

Payment preferences to be persistently changed

  • There has been an exponential growth in payments that operate outside of traditional channels, for example, P2P, push and disbursement transactions. Although many financial institutions have incorporated these non-traditional offerings, the economics of these payments differ significantly from traditional point-of-sale card payments and are further complicated by their propensity to attract fraud.

  • Before COVID-19, the number of contactless card transactions in the United States was unimpressive. Since the start of the pandemic, hygiene concerns regarding the cleanliness of cash and point-of-sale devices have triggered its use. A contactless card allows its user to avoid cash and does not require any contact with the point of sale device. Card issuers who have provided contactless cards to their cardholders will take advantage of these trends to promote their card and improve the position of the wallet.

  • Smart leadership in banks and credit unions will consider how many contracts, especially with card networks and card processors, were made following the last crisis and will need to be realigned. Therefore, institutions need to consider changes in debit and credit volume, card usage history, and strategically plan for the short and long term. Institutions whose agreements expire in the next two years should already have a commitment with their suppliers in order to take full advantage of their negotiating position.

Changes to occur as a result of the election

  • The big question is: will there be changes in the regulatory approach and tax policy? It certainly looks like the change is coming. The new president campaigned on a promise to reinstate most of the financial reforms of the Dodd-Frank era that the outgoing administration did not support (such as reduced capital requirements). There will likely be changes in corporate tax structures and laws impacting the ultra-rich. In addition, banking regulators still have considerable leeway to impose changes in capital and liquidity requirements, resolution and recovery planning, risk management procedures and disclosure requirements.

  • With the new administration and a new Senate majority, 2021 will see the implementation of continued economic support programs, as the PPP program was at the start of 2020. With the most recent stimulus package containing an additional $ 284 billion for assistance to small businesses, it seems unlikely that the end of the support programs announced by the government is near. Financial institutions wishing to streamline their participation in their programs will continue to focus on improving their ability to link their systems to the SBA or other government agencies.

Adapt to today’s economy

  • In 2021, financial institutions will continue to face the changing economy with traditional balance sheet strategies by monitoring fluctuations in deposits, evaluating customer refinancing agreements, and considering how government stimulus measures can. create loan opportunities / risks. Engaging the credit risk and accounting team to determine how increases in expected losses will affect earnings will also allow them to consider opportunities to refinance existing debt, raise new financing at attractive rates and / or review any planned capital action.

  • In 2020, SRM saw a growing number of financial institutions look for ways to go on the offensive by adjusting to economic conditions. Institutions are taking a closer look at supplier costs and using renegotiations with suppliers as an opportunity to ensure that the economics of their arrangements are “to market”. Optimizing supplier relationships will continue to be an area where attention can pay off for a bank or credit union.

  • With many institutions facing continued pressure on net interest margins, moderate loan demand, and threats from traditional and non-traditional players, the desire to scale up will be one of the dominant stories for industry in 2021. The several large deals concluded in the last few months are just one indication of what is to come. Over the next few years, transactions will easily exceed the roughly 250 transactions per year on average over the past 10 years.

Brad Downs, CEO of SRM, commented, “The pandemic has brought many changes to the banking industry, but what could be most important is the pace at which consumer expectations and business needs have and continue to change. In 2021, banks and credit unions that can understand the depth and breadth of these and other impacts introduced to financial services over the past 10 months will be the ones who gain a competitive advantage in the complex market of today. “

About SRM

SRM (Strategic Resource Management) has helped more than 1,050 financial institutions add $ 3.6 billion of value to their bottom line in critical areas such as payments, digital transformation, basic processing, artificial intelligence and operational efficiency. Our decades of experience have reduced costs, increased revenues, increased productivity, increased customer satisfaction and provided a competitive advantage to customers in an environment of constant and accelerating change. Visit for more information and follow the company @SRMCorp.

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